The value of the NCAA brand

Jim Host remembers "like it
was yesterday" the day he proposed the start of a corporate marketing program to
then-NCAA Executive Director Walter Byers.

It was March 29, 1981 — the day before John Hinckley's attempted assassination
of Ronald Reagan. Byers was hosting a reception for network officials and other
VIPs in Philadelphia, the site of the 1981 Final Four.

Host

"I told Walter that I thought it was time to talk about [starting a sponsorship
program]," said Host, the founder of Host Communications Inc. "His comment was,
'Over my dead body.'"

Host, whose company had been administering radio and program printing for the
NCAA since the mid-1970s, thought the NCAA needed to increase its visibility. He
saw sponsorship as a way for corporations to differentiate themselves from their
competitors.

In Host's mind, allowing a company to buy the rights to use NCAA logos to help
sell its products would dramatically elevate the image of the NCAA and the Final
Four; Byers saw the proposal as too commercial.

Two years later, though, Host got an unexpected call from Byers. This time, the
NCAA chief was ready to talk.

That call led to the start of a sponsorship program that by the late 1990s grew
to 19 companies under Host. The Host program was eventually overhauled in favor
of a new program, which launched last school year and touted a less-is-more philosophy
where more inventory would be offered to fewer companies at a higher price.

The new program, not yet the success its creators planned it to be, had only
five sponsors last year and has added only one new sponsor this year.

The NCAA, its television and marketing rights holder CBS, and NCAA sponsors say
they're happy with the progress that's been made.

Others say an NCAA sponsorship costs too much in relation to what's included
in the packages. While good in concept, some think the new NCAA sponsorship packages
should be re-examined and repackaged entirely.

Host isn't sure what swayed Byers, who retired in 1987, and ultimately the NCAA
executive committee on the decision to start a sponsorship program. Perhaps it was
Host's subtle persuasion.

"I would clip things out of publications and put a note on it saying, 'Walter,
this is the kind of thing I'm talking about,'" Host said. "Perhaps something I sent
him resonated, and that's why he decided to move ahead."

Even with the go-ahead, it took nearly two years before the first corporate partner
was brought on board.

It wasn't lack of interest from corporate America that caused the delay. In fact,
Gillette almost immediately lined up to pay $500,000 a year in return for rights
to promote around the Final Four.

The problem was Byers' constant scrutiny of the deal, and his insistence that
the NCAA not go overboard into commercialism. The Gillette deal almost died two
or three times, said those around the negotiation.

"Walter was trying to control it to a point where [the NCAA would] get a lot
of money, but would not give [Gillette] much exposure," said Dave Cawood, former
NCAA assistant executive director, who now works at Host. "He also knew the first
deal would set the standard for what everyone else could do, so he was ultraconservative."

Byers was unavailable for comment.

Finally, in 1985, the NCAA Corporate Partner program officially started, with
Gillette's deal becoming the model.

Corporate Partner deals began primarily as a way to increase exposure for the
men's basketball tournament, but every deal included rights to all NCAA championships.
When the program started, the NCAA had 75 championships. Today, that number has
grown to 88 championships in 23 sports.

As other NCAA championships, such as the College World Series, began to grow
in popularity, companies began using more than just the men's basketball tournament
as a platform, further increasing the value of the packages. Soon $500,000 deals
became $750,000 deals, which became $1 million deals.

At its peak in the mid- to late 1990s, Host Communications had lined up 19 corporate
sponsors. By 2002, when Host's contract for NCAA marketing rights ended, Corporate
Partner deals carried annual price tags of between $1 million and $4 million apiece,
with deals averaging about $2 million a year.

Adding a TV element

Sometime around 1996, it dawned on Host that the only way the NCAA corporate
marketing program and the NCAA brand could continue to grow was if marketing rights
were somehow combined with television ad buys and other media.

Host presented his concept to then NCAA President Cedric Dempsey, who welcomed
its exploration. Together, Host and Dempsey ran the idea first through General Motors,
a major NCAA partner at the time, and then to officials at various television networks.

"[The networks] all felt it was the future model in dealing with sports products,"
Dempsey said. The bundled rights approach was then introduced to the NCAA television
negotiating committee as the new model for the association's next deal.

CBS Sports President Sean McManus, whose network was the NCAA's television partner
at the time, paired with Host to negotiate a CBS-Host bundled rights package during
CBS' exclusive negotiating window for a new contract in August 1998, Host said.
When talks broke down, the television committee opened discussions with other networks.

heard about a day-and-a half's
worth of presentations from Fox, ABC/ESPN and CBS. In the end, the NCAA struck an
11-year, $6 billion agreement with CBS that would begin on Sept. 1, 2002, and included
television, marketing, licensing, publishing, licensing and special event rights.

The NCAA's decision to accept CBS' second offer came down to the comfort level
the association had formed with the network and the fact that the network offered
more money than its competitors, NCAA officials and members of the NCAA television
committee said. No one interviewed for this story would say how much more CBS offered.

For the NCAA, the deal was groundbreaking not only because of the bundled rights
but also because it was the first time the NCAA had a television contract that extended
beyond four years.

The agreement allowed CBS to subcontract certain rights, which resulted in a
deal to pass marketing rights along with publishing, licensing and event rights
to Host under a $575 million deal over 11 years.

Starting the new sponsorship program meant wiping clean the NCAA's existing slate
of sponsors by the start of the new television contract. Instead of simply renewing,
incumbent sponsors had to negotiate new deals.

The top-level Champion package, in addition to marketing rights, includes media
throughout CBS' regular-season college hoops coverage and its coverage of the Division
I men's basketball tournament. Corporate Partner packages, the second-tier sponsorship,
also include marketing rights around all 88 championships and media but to a lesser
extent than the Champion level.

The Corporate Champion deals were originally pitched at more than $35 million
a year, with marketing rights accounting for between $10 million and $12 million
of the annual cost. Corporate Partner deals, by comparison, were said to be pitched
at a price ranging from $10 million to $12 million a year.

"What we've done is broadened [the program] with a heavy media [and] marketing
commitment," said Michael Aresco, senior vice president of programming for CBS Sports.
"In other words, the marketing rights have now been raised to a different level
with the expanded and innovative use of media."

By June 2002 the first big deal was struck when Coca-Cola beat out Pepsi, the
incumbent in the soda and water category, in a $500 million, 11-year deal. Coca-Cola's
Minute Maid brand had been the incumbent in the juice category. The company's current
deal includes soda, juice, isotonic, water and the quick-service restaurant category.

In addition to Coke, Champion-level deals with Cingular and GM and Partner-level
deals with Kraft and Monster were also well under way.

Sponsor negotiations were progressing well considering the slumped economy at
the time. But the deals didn't get done fast enough. According to sources, in late
August, when it became apparent that without the completion of additional deals
Host wouldn't be able to meet a $10 million rights fee payment due Sept. 1, 2002,
CBS and Host restructured their deal. Marketing rights, the primary piece of Host's
deal, were taken in house by CBS.

Publicly, CBS and Host said it was a mutual restructuring. Sources, however,
said CBS was never fully on board with outsourcing marketing rights and used Host's
inability to meet payment as an opportunity to regain control of the marketing rights.
Jim Host is no longer involved in operations at Host Communications. He's now commerce
secretary for the state of Kentucky.

NCAA sponsor Cingular participates in events such as “Hoop City,” held during the Final Four.

By the start of the men's basketball tournament in March 2003, only four of the
14 incumbent Corporate Partners the NCAA had for the 2001-02 school year —
Cingular, General Motors, Kraft and Coca-Cola, which had its juice brand Minute
Maid as an incumbent — signed new deals. Web site Monster came on as a new
sponsor.

Priced right?

Since the Host restructuring, no additional Champion-level sponsorships have
been sold. Only one company, The Hartford, has stepped up at the Partner level.
That deal was announced late last month.

With only six corporate sponsors, the NCAA has the fewest sponsors of all major
sports properties. By comparison, the NFL last season had 21 sponsors, while the
NBA this season had 19.

"I don't think they have accomplished quite what they wanted to yet," Dempsey
said.

The plan in the early stages was to have about six companies in for the long
haul like Coca-Cola, he said. "Obviously the economy hit a downspin that didn't
help. ... It's a lot of money and I think there are not a lot of corporations that
can make that kind of financial commitment for a 10-, 11-year period."

Major sports sponsors and their agencies say the difficulty in CBS' sales efforts
for NCAA sponsorships lies in the cost of entry as compared to sponsors' projected
return.

The fact there aren't more NCAA sponsors on board is somewhat surprising to Dean
Bonham, whose company did a top-down evaluation of the property for ISL, the now-defunct
firm that was in discussions with CBS to subcontract NCAA marketing rights.

"The fact of the matter is they have a multiple of properties that deliver nationwide
exposure, that deliver a cross section of demos and that deliver real value to corporate
America," Bonham said. "If a property as valuable as the NCAA isn't sold and isn't
maximizing its revenue, then that means the value proposition is out of balance.
It's not a lot more complicated than that."

Several sponsors that were pitched the package agree.

Kraft has made its Planters and DiGiorno brands the center of NCAA-themed ads.

"The price was so astronomical you couldn't justify the investment based on the
crown jewel of the NCAA basketball tournament," said an official from one major
sports sponsor, who didn't want to be named. "I don't know how anybody can justify
the asking price. It was in the range of $35 million a year. ... Our analysis was
the media couldn't get anywhere close to the number — and we did value the
tournament and the Final Four."

The value CBS and the NCAA place on all the other championships has been high,
other sponsors said, though in a second pitch from CBS, one sponsor said the network
has "come back down to earth a little bit" in its expectations.

A second flaw with the package, though, is the fact that NCAA sponsorships do
not include rights to postseason Division I-A football now under the Bowl Championship
Series format.

"I think there would be more value with a football championship as part of the
overall package. Absolutely," said Steve Tihanyi, general director, marketing alliances
at General Motors. "Let's face it. The two big [college] sports are football and
basketball. ... The Frozen Four and things like that are great, but football would
definitely bring a lot of added value to the relationship."

Division I-A football is administered by I-A conferences and not by the NCAA.
As a result, the BCS football championship doesn't fall under the category of NCAA
championships. Only a vote by member institutions in favor of the NCAA administering
Division I-A's football championship could change the current structure.

To get access to I-A football's national championship game, a sponsor would have
to buy into the BCS package, which is run by ABC. Sources familiar with those deals
said BCS access could cost another $10 million to $12 million.

The existence of other ways to associate with college sports combined with the
cost-of-entry just to get into the official NCAA game may shed light on why only
six companies have stepped up to the NCAA plate, industry officials said.

As one agency exec put it, "I cannot do an NCAA corporate partnership and still
gobble up key universities in key markets and put together a whole platform —
TV, online, print, grassroots events, even an event around the Final Four —
that makes me appear to be an NCAA partner and you don't have to use NCAA marks
or the Final Four logo to do it."

Part of the problem is that in addition to buying media and rights to the NCAA
at a significant cost, companies still have to spend money to activate their relationships.

"The NCAA is a huge opportunity for corporate clients," said Wally Hayward, CEO
at Relay Sports and Event Marketing. "The tough thing for clients is how to get
their arms around all of the NCAA."

For the companies that have made the investment, activation and knowing what
to do with the property beyond basketball have been key.

Coca-Cola, for example, decided to get involved because it not only met the company's
criteria of getting involved with things consumers are passionate about but it also
fit with various Coca-Cola brands and Coke's philanthropic efforts, said Jim Dinkins,
managing director of the NCAA property at Coke.

One way Coke activates its NCAA sponsorship is its “Spirit of Champions Tour” that visits campuses, championships and other sites.

In year one, the company has "actually accomplished quite a bit," Dinkins said.
He would not provide specific sales numbers. "Let's put it this way. Every time
we have marketed the property we have had positive volume results versus the prior
period that we didn't market it," he said, adding those results apply to marketing
that's across different NCAA sports.

Last year Coca-Cola activated between 20 and 25 NCAA championships. This year
the goal is to be involved with 40 of the 88 championships, Dinkins said.

Other NCAA sponsors said the new deals caused them to examine the property more
closely to make sure they understood all the intricacies of it.

"I think we're getting more out of [the deal] just because our own focus and
understanding in what we wanted to do with it is better," GM's Tihanyi said. "Historically
maybe we had too much of a set of media blinders on. ... This time there was a different
approach."

Beyond basketball, GM has conducted regionalized marketing efforts around NCAA
championships such as the College World Series and men's lacrosse, where dealers
in the respective championship area will run ticket promotions and do product displays.

So far the NCAA sponsorship has produced positive results for Pontiac, Tihanyi
said. GM research measures on things such as consumer desire to do things at a Pontiac
dealership; awareness of Pontiac as a sponsor; and consideration of Pontiac as a
product were all up significantly, Tihanyi said.

Being choosy

NCAA officials said they realized from the beginning their new sponsorship
structure wasn't going to appeal to everyone. It wasn't meant to. The new program
was designed to reduce the number of sponsors while still structuring the program
so that CBS could recoup its money.

Under the old Corporate Partner program, Host was allowed to sign a maximum of
20 Corporate Partners. The new contract calls for CBS to limit the total number
of sponsors to 10. Once the Champion and Partner tiers were designed, it was decided
that the number of Champions would be limited to about six companies.

"[CBS'] focus has been on making sure they are selective," said Greg Shaheen,
NCAA vice president for Division I men's basketball and championship strategies.
"It's not for everyone. It's for the kind of company that's prepared to commit,
activate and elevate on multiple platforms throughout the year."

CBS officials said they knew it would take time to sell the new packages. The
deals are being shopped as year-round sponsorships and now include media as well
as access to other rights such as radio and Internet. As a result the sales process
has been slower. "It's a more painstaking process. No doubt about it," CBS' Aresco
said. "But we expected that."

Under the new structure, NCAA officials say they are taking extra steps to provide
as much value as they can to partners.

"It's an effort unlike any we've ever made," said Tom Jernstedt, executive vice
president at the NCAA.

"There are more cylinders in the engine," Shaheen said. He points to the fact
that in addition to offering one-stop shopping that gives access to television,
radio, print and the Internet, the new packages contain additional components such
as tagging of PSAs on television, radio, billboard and print, and corporate identification
on champion brackets on air and print.

The NCAA packages are beginning to offer broader exposure in venues, Shaheen
said. Though not yet allowing corporate signs, the association has corporate logos
on things such as hotel card keys and allows corporate messages to appear on video
boards in venues, he said.

To better assess the value of its marketing assets, the NCAA hired IEG Inc. to
evaluate the current program and recommend ways in which it can be enhanced.

IEG president and founder Lesa Ukman, whose company has worked with the NCAA
on and off for more than a decade, said she's observed a change in NCAA officials'
attitude and approach toward corporate marketing.

"There's more of an open-mindedness," Ukman said. "They are really being proactive
in saying, 'How can we add value?' and not just saying, 'We have our rights fees;
we'll let CBS worry about it.' They really want to see a good partnership."

Another sponsorship tier?

The NCAA packages have been a work in progress since they were relaunched.

"The pitch and approach has evolved as we've gotten to know and understand the
program better," Aresco said.

Overall CBS is happy with the NCAA deal, he said.

The new program has generated stability for the tournament's ad sales, since
the combined marketing and media deals mean "a big chunk of revenue is already in
house for a number of years," Aresco said. He couldn't confirm figures, but last
year's five sponsors were said to have generated more than $100 million in revenue
for the network in rights and media.

Ad inventory for this year's tournament, as of late February, was close to 85
percent sold.

As for future Champion and Partner-level deals, Aresco is optimistic. "We'll
get more [sponsors] as we show what we can deliver," he said. "Any program has to
be built."

CBS will be affected financially.
The contract between Host and CBS included a payment averaging more than $52 million
a year to CBS. Technically, without that contract in place CBS lost $575 million
in guaranteed revenue, which is about 9.6 percent of its total rights fee commitment
to the NCAA.

"I think the rights fees they've paid probably don't make sense for what they
can get out of it from just media buys," one industry expert observed. "So they're
kind of saddled with that for now."

Others think it's too early to say where CBS will end up on the agreement since
it's only year two of an 11-year agreement.

"I don't know if they ever felt they could make money," said sports marketing
executive Rick Jones. "Sean McManus doesn't want to say, 'Hey this is a loss leader
for us,' but [the men's basketball tournament] is programming that can beget other
programming. I've gotta believe that going into May sweeps you'll see [CBS] program
promotion during March Madness. There's value in that."

Another possibility for improving the sponsorship program is working closer with
ESPN, which has television rights to 21 NCAA championships including the women's
basketball tournament and the College World Series.

Officials there say they've been pitching a potential third tier of sponsorships
to NCAA and CBS officials. That tier would provide limited rights to NCAA marks
and media during ESPN's championships. Under the current structure, only NCAA Corporate
Champions receive inventory across ESPN's championships as part of their deals.
Discussions of the third tier are ongoing.

"There are many ways to make this work," said Len DeLuca, ESPN senior vice president,
programming development. "If [the current method] is not going to be or hasn't been
an effective route, then there are different ways to provide value to sponsors.
One is to seriously explore the concept of creating this third non-invasive tier
of NCAA corporate sponsors."